Indian private equity and venture capital (PE-VC) investment softened to approximately $39 billion in 2023, mirroring the global trend, said a report by Bain & Company. Traditional sectors including manufacturing, healthcare, energy have shown resilience and gained share, with around 75 per cent of investments in 2023, compared to 60 per cent in 2022, it added.
The manufacturing sector in India emerged as an attractive bet for investors with investments of around $2 billion growing by 20 per cent CAGR over the last two years (2021–23). This was driven by supply chain diversification, government incentives, and numerous scale assets coming to market, said Bain & Company’s annual ‘India Private Equity Report 2024’, in collaboration with Indian Venture and Alternate Capital Association (IVCA).
With EV penetration in India expected to reach 40 per cent by 2030, the past year saw OEMs drive more than 70 per cent of deal value and large investments (more than $100 million) across vehicle segments, such as Ola Electric, Ather Energy, Mahindra EV, TI Clean Mobility. Packaging witnessed scale deals in globally competitive companies with strong exports with the year witnessing two $100 million+ deals in Polyplex and Tufropes, with both companies generating over 70 per cent sales from exports.
“Advanced manufacturing is expected to witness an increase in deal activity in the near to mid-term, driven by China+1 tailwinds, government incentives such as PLI and emergence of scaled assets across multiple segments. We anticipate that electronic manufacturing services, packaging, and EV players will greatly benefit from this favorable environment in the coming years as well,” said Gustaf Ericson, Associate Partner at Bain & Company.
India PE-VC dealmaking is expected to remain tempered in 2024 amid global macroeconomic stabilization. However, traditional sectors including advanced manufacturing, are likely to attract outsized investments in India. This, per the report, is due to positive fundamentals, supportive policy environment (such as production linked incentives, tax incentives, etc.), and the emergence of scale assets across multiple sub-segments.
The EV market is expected to see strong deal activity in OEMs driven by already-funded scale assets planning capacity expansion or launching new products, and in charging infrastructure including battery-swapping players looking at expansion of their geographic footprint or into new EV segments.
The key drivers of investment activity will likely be across plastics, secondary paper, and glass, especially with the growth of the F&B industry demanding premium, lighter weight, lower cost plastics, and with e-commerce experiencing a shift towards sustainable packaging. The revenues of India-based packaging companies is expected to grow at around 10 per cent CAGR between 2023-27.
Also, electronics production in India is expected to grow at 25 per cent CAGR over 2023-27 with mobile phones, IT hardware and consumer electronics likely to be the most attractive sub-segments in terms of deal activity. The key growth drivers in the segment include increasing penetration of smartphones and consumer durables, faster replacement cycles, large export uptake by leading players, increasing backward integration (e.g., into components), and favorable duty structure for import substitution.
Furthermore, global supply chain diversification is likely to benefit Indian manufacturers in select, export-oriented sectors such as electronics, pharma (especially in APIs & CDMOs), and chemicals (specialty chem and agrochem), as they boast of globally competitive scale players in India and enjoy robust government support.
The Bain & Company report said that India-focused funds are doubling down on India and have meaningfully diversified across sectors outside of their core areas. Multiple leading funds entered new sectors over 2021–23 with sectors such as manufacturing, healthcare, new-age tech and SaaS witnessing maximum new funds entering.
In 2023, India saw PE investments of $29.6 billion in what remained a subdued year for private equity globally—registering a drop of 18 per cent over 2022’s peak value of $36 billion. PE contributed to around 75 per cent of total PE-VC deal value as large scale deal-making persisted for high-quality assets. The drop in VC investments was much sharper, with investments at $9.6 billion in 2023 versus $25.7 billion the previous year (2022). VC deal flow decreased significantly as investors continued to prioritize unit economics over growth and recalibrated their strategies amidst macroeconomic challenges.